Bankruptcy Case Study Under Chapter 7

Real Estate & Auto

This is the chapter 7 bankruptcy case study for David D., who resides in Berwyn, Illinois. This person has never filed a bankruptcy case before and is obviously under some financial stress and is seeking help. In terms of real estate, he does not own any real estate. He is currently renting his apartment on a month-to-month basis and he is up to date with his rental payments. He owns a 2014 Kia Forte which is financed through Capital One Auto. His monthly payment is $400 per month, he is current on his payments and he purchased the vehicle nearly 2 years ago. In terms of personal property, he has a checking account and a savings account at Bank of America with an approximate balance of $300. He has a life insurance policy which contains a death benefit only. He has an IRA with a total of $1200 in it. He receives a small tax refund each year of approximately $491.

Description of Household

Turning to the description of his household, he is divorced with an 11-year-old child who does not reside with him. He is currently working as a store manager and has been doing so for the past nine months. His annual income as the store manager is $45,000 per year. When we calculate what he actually takes home per month from his job after all deductions and expenses, he nets $2900 per month. Let’s examine his monthly expenses. His rent is $850, water is $50, electricity is $100, cellular phone is $150, cable TV and Internet is $150, food is $450, transportation is $250, auto insurance is $92, auto payment is $400, and miscellaneous personal expenses are $50.

Quick Analysis

When we do a quick analysis to see whether or not this person has available money per month, the answer is no. Thus, we can comfortably say that he would qualify for a chapter 7 fresh start bankruptcy as opposed to a chapter 13 reorganization. In terms of his summary of financial affairs, he has earned approximately $40,000 – $50,000 each year for the past three years.  He did close a checking account last year at PNC with a zero balance.  He has not sold or transferred any real estate in the last four years, he has not owned his own business in the last four years, and he cannot sue anybody for any reason personal injury or workers compensation.

Debt Scenario

In terms of debt, he has medical expenses totaling $7000 as a result of an illness not an injury. He also has payday loans, tollway violations, credit card debt, and past-due student loan debt. What we have here is really a mixed bag of creditors. Some of the debt such as the credit cards, medical bills and payday loans can be eliminated through the chapter 7 process. Some of his other debt such as tollway violations and student loans are going to remain due and owing after he completes a chapter 7 bankruptcy case. However, based on his income, his expenses and the nature of his debts in totality, I would recommend a chapter 7 fresh start bankruptcy.

Prerequisites To Filing

In order to qualify for chapter 7 bankruptcy, he will have to take a credit counseling session, which must be completed within 180 days of the case filing. He also must provide his most recent federal tax return and his most recent two months’ worth of paycheck stubs. The approximate fee for a case of this nature would be roughly $1500 total. We would also make sure that all of his creditors were listed on his petition by obtaining a recent credit report. Thus, chapter 7 fresh start bankruptcy would be my recommendation in this case study.

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